Key Takeaways
- Citi says tokenization is moving beyond pilots into everyday institutional operations.
- The bank projects a $5.5 trillion tokenized financial asset market by 2030 in its base case.
- Tokenized collateral could enable round-the-clock settlement, broaden the range of eligible assets, and reduce operational delays.
Tokenization has moved beyond experimental pilots and into institutional production, according to Citi, which says banks and market infrastructure providers are embedding digital assets into their core operations.
In its report, “The Digital Frontier: Collateral in a Tokenized World,” Citi argues that the question is now how institutions integrate tokenized assets into everyday financing, margin, and settlement workflows.
The shift could reshape collateral management by allowing eligible assets to move around the clock, reducing settlement delays and freeing resources tied up by operational friction.
However, Citi expects traditional and blockchain infrastructure to coexist as institutions address legal, custody and governance requirements.
Citi Sees Three Forces Moving Tokenization Into Production
Citi identifies three developments driving adoption: institutional infrastructure, regulated on-chain settlement money and improving regulatory clarity.
Banks, custodians and financial market infrastructure providers are building capabilities to issue, hold, transfer and service tokenized assets. These functions matter because a digital representation alone does little unless institutions can value it, safeguard it and use it in transactions.
The second development addresses the payment side. A tokenized security cannot deliver its full benefits if the corresponding cash payment still depends on banking hours or conventional settlement cycles.
Tokenized deposits and other regulated digital settlement assets can help close that gap, enabling simultaneous exchanges of securities and cash. This process, known as atomic settlement, reduces the risk that one party delivers while the other fails to complete payment.
The third force is legal clarity. Institutions need confidence that tokens represent enforceable claims and that ownership transfers and security interests receive recognition across jurisdictions.
Citi says uncertainty remains, but the industry is increasingly focused on integrating these capabilities into established institutional workflows.
A $5.5 Trillion Forecast Puts Collateral in Focus
The report cites Citi Institute research projecting a $5.5 trillion tokenized financial asset market by 2030 under its base case, compared with an approximately $17 billion baseline.
Its scenarios range from $2.7 trillion in a bearish outcome to $8.2 trillion in a bullish one. These figures represent forecasts rather than guaranteed adoption.
For collateral managers, Citi highlights three potential changes: faster settlement, a broader range of usable assets and improved movement across borders.
A bond pledged against a derivatives obligation could move outside conventional market hours. Certain tokenized instruments, such as money market fund shares, could also remain yield-bearing while serving as collateral.
Citi illustrates the opportunity with a hypothetical Friday evening margin call involving a European asset manager and an Asian custodian.
Compatible digital infrastructure could allow an eligible bond and settlement token to exchange immediately, avoiding a wait until markets reopen.
“Tokenization does not create liquidity or change asset’s fundamental economics,” the report states.
Its argument centers on reducing the time and expense required to identify, mobilize, and deliver assets that institutions already hold.
Hybrid Infrastructure Will Define the Next Stage
Citi expects adoption to develop gradually, with traditional and tokenized settlement systems operating alongside each other.
The bank’s preferred model treats both forms of collateral as one inventory. Institutions would tokenize an asset when doing so creates value and use existing infrastructure when that remains more practical.
That approach places connectivity and optimization at the center of adoption. Separate digital and conventional collateral programs could fragment inventory and undermine potential efficiency gains.
Governance will also become more demanding. Programmable transactions require independent reviews of their logic, secure custody of cryptographic keys, clear legal treatment and reliable fallback arrangements.
For asset managers, pension funds and insurers, Citi recommends assessing whether providers can manage traditional and tokenized holdings together.
“The firms that treat tokenization as an experiment will run two collateral programs badly,” the report concludes.
